Obama's polemics versus economic facts
By Peter Morici
In politics, whatever the president can get voters to believe becomes the
truth, but in economics the numbers establish the facts.
Unfortunately for President Barack Obama, Americans can add, and their sums are
destroying fantasies the president would hoist upon a more gullible public.
Despite claims that the US$787 billion stimulus package and bank bailout
averted calamity, the US economy is in shambles.
The Commerce Department reported that gross domestic product (GDP) grew 5.7% in
the fourth quarter, but 60% of that was an accounting adjustment. Businesses
ran down inventories at a
slower pace, but in the arcane world of GDP accounting, that scores an increase
in investment and growth.
Domestic consumption and real investment, which define the sustainable pace of
economic expansion, contributed a paltry 1.8% to growth. That's less than half
of productivity growth, indicating more pink slips are coming.
Fifteen million Americans are unemployed, more than 450,000 register for new
jobless benefits each week, and factoring in folks relegated to part-time work
but preferring full-time employment and those too discouraged to seek jobs, the
unemployment rate is much closer to 20% than 10%.
Campaigning for president, Obama promised to create five million jobs in green
industries. Newly elected President Obama purported his stimulus package would
create 3.5 million jobs, 90% in the private sector, and now the president's
Council of Economic Advisors professes stimulus spending has created or saved
1.5 million to 2 million jobs.
Yet, the White House can tally only 599,000 paychecks that can be traced to
stimulus spending. It touts all the government employees whose jobs have been
saved.
Businesses need customers and capital to create jobs. They don't have enough of
either, because Americans spend much more on imports than they export, and the
banks, after receiving more than $2 trillion in federal aid, simply won't lend
to most worthy businesses.
In his State of the Union, the president pledged to double US exports in five
years and create two million jobs. Though exports are up a bit, thanks to a
weaker dollar against the euro, China is where the big opportunities lie.
China exports about $330 billion annually to the United States but purchases
less than $90 billion from the US. Simply, China suppresses the value of the
yuan to make its products artificially cheap in US stores and imposes
protectionist obstacles to American exports.
Buicks are top sellers in China, but a 40% subsidy from an undervalued yuan and
a 25% tariff on cars compels General Motors to produce there instead of
Michigan.
Treasury Secretary Timothy Geithner and manufacturing czar Ron Bloom refuse to
even discuss Chinese protectionism.
Factoring out the inventory adjustment, GDP grew a paltry $176 billion in the
second half of 2009, and the banks paid out nearly $150 billion in bonuses on
new profits more than double that. It is easy to see who is benefiting from
Obama's growth policies, and why most Americans feel a bit poorer each day.
Yet, the president wants another stimulus package, rebranded as a jobs
initiative, and he plans to fix the banks by prohibiting them from sponsoring
hedge or private equity funds, investing their own capital through proprietary
trading operations, and imposing a tax on bank capital.
Of the more than 8,000 banks, only a small handful sponsor such funds, very few
invest through their own trading operations, and the bank tax will raise only
about $10 billion annually but will drive financial activities offshore.
Until the president ceases grand promises and outlandish claims, wells up the
courage to confront China and reins in abuses on Wall Street, Americans will
see everything from their healthcare costs to their cable TV rates rise, except
their paychecks. If they are lucky enough to still have job.
If the president does not change strategies soon, the Democrats will take a
shellacking in November even their statisticians cannot deny.
Peter Morici is a professor at the Smith School of Business, University
of Maryland, and former chief economist at the US International Trade
Commission.
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